Ronald Reagan Killed Capitalism

I have posted many times about the failure of Reagan's "trickle-down" economic theory, and about how it has caused the serious economic problems currently facing the United States. But I recently ran across an excellent post by Marc McDonald on his blog BeggarsCanBeChoosers.com that puts the failure of "trickle-down" into perspective. He even points out that it may well be the cause of the demise of capitalism.

In the short-term, "trickle-down" has made the rich and corporations richer, while having a devastating effect on all other Americans. But in the long-run, it will hurt everyone -- even the rich and the corporations. Here is what Mr. McDonald has to say (and I agree with every word of it):

Thanks to tireless efforts by historical revisionists over the past two decades, Ronald Reagan has gotten a lot of credit for achievements that he had nothing to do with. "Winning" the Cold War is a good example.

In reality, Reagan's policies had little or nothing to do with the collapse of the Soviet Union. In fact, the last thing the Military Industrial Complex ever wanted was to see the Cold War's end (and with it the trillion-dollar gravy train of "defense" contractor funding).

On the other hand, Reagan should get credit for something that he actually did achieve: killing capitalism as we know it.


Capitalism had its first near-death experience during the Great Depression. Ironically, it was saved by the most progressive president that the U.S. ever had: Franklin D. Roosevelt. Although attacked by the business community at the time, FDR's New Deal in fact resurrected capitalism and gave it new life. The New Deal created the Great American Middle Class: tens of millions of well-paid workers that actually had the money to buy the products that the system produced.

It was a wonderful arrangement that made America a superpower and the most envied nation on the planet for decades to come.

However, America's wealthy never got over their hatred of FDR and the New Deal---despite the fact the latter saved capitalism from itself. The Rich & Powerful constantly plotted to abolish the New Deal. And in 1980, with Reagan's election, the wealthy class finally saw its chance to begin the attack on the New Deal---a process that continues to this day.

Under Reagan, middle class entitlements were slashed, as were programs to assist the poor. And sweeping changes in tax policy began to favor the very wealthy, at the expense of the middle class and the poor. Also, labor unions and labor laws were gutted. Lastly, under Reagan's disastrous "free trade" policies, America started shipping all its good-paying manufacturing jobs overseas.

The result of all this was that, under Reagan, the Great American Middle Class began to shrink---a process that continues to this day. And with a much-weakened middle class, U.S. capitalism has hit a major crisis in that fewer and fewer consumers are able to buy the products that the system produces.


The latter is a crucial component of capitalism that has long been curiously overlooked by the "free market" Chicago School zealots who've long championed a completely deregulated economy. I find it interesting how these zealots are always so concerned about the plight of the "over-taxed, over-regulated" rich (who they claim create all the jobs).

Of course, what these ivory tower zealots overlook is that capitalism as we know it simply can't function unless there is a strong, prosperous middle class around to buy the products created by the system.

Although Reagan's policies gutted the U.S. middle class, the resulting devastation to capitalism didn't become readily apparent until much later on. This was because the whole crisis was masked by America's increasing embrace of credit-fueled consumption, which created the mirage of prosperity.

Under Reagan, America simply stopped paying its bills. The government started borrowing hundreds of billions of dollars from the likes of Japan. And consumers increasingly started pulling out their credit cards to pay for purchases, rather than using cash.

Finally, a series of bubbles came along to further create the illusion that the American economy was much more prosperous that it really was. These included the Dot Com bubble and the more recent housing bubble.


Of course, the whole Ponzi scheme all came crashing down in 2008. Since then, the U.S. economy has remained on life support. The nation continues to plunge further into debt, even as the U.S. dollar continues to hit new all-time lows. The middle class is all but extinct these days, as are the good-paying jobs that once help make the American economy the mightiest on earth.

Virtually all of this is a legacy of Reagan's policies. And unlike capitalism's first near-death experience, in the 1930s, it's extremely unlikely that we'll see another FDR ever come along to give the whole system a new lease on life. In our Citizens United era, that's simply not ever going to happen.

Reagan (or more specifically, his wealthy backers) originally aimed to crush the New Deal and return the U.S. to an unregulated 19th century dog-eat-dog form of capitalism. They hoped that this would propel capitalism to new heights. But by ignoring the key role of middle class consumption in their calculations, they unwittingly severely damaged capitalism itself and turned America into a second-rate power.

We continue to see the corrosive effects of the Reagan legacy to this day. The serious problems that began to emerge during his presidency (out-of-control fiscal and trade deficits, a shrinking middle class, the loss of good manufacturing jobs, and a plummeting dollar) continue to this day.

Of course, the wealthy class to this day continues to live in denial that the whole capitalist party is now over. They continue to cling to the hope that the crisis caused by the 2008 economic collapse will eventually be fixed and the capitalism will somehow continue.


The problem is that the good-paying manufacturing jobs are gone for good. And the much-hyped service economy jobs that were supposed to replace the latter have in fact been poor substitutes, offering vastly lower pay and benefits, for the most part. In fact, to this day, America continues to bleed what few good manufacturing jobs it has left, thanks to the utter absence of any kind of intelligence trade policy.

What's more, given the ever-weakening dollar and the ever-growing trade and fiscal deficits it faces, America has less and less clout on the world stage. For the entire post-World War II era, America could simply print more dollars to bail itself out of fiscal crises, given that the dollar was the world's international reserve currency. That era, clearly, is near an end.

With the demise of the dollar, America will be a much weaker and less wealthy nation. For the entire post-World War II era, America has been the standard-bearer for capitalism. With the latter now discredited, it's clear that the rest of the world is increasingly rejecting the U.S. model of economics and is instead turning to the regulated economies of Continental Europe and East Asia as the new role model.

Not only did Reagan's era doom capitalism, but his toxic legacy ensured that America will find it extremely difficult to remedy the crises that resulted from his administration. These range from the deterioration of public education that resulted from Reagan's budget cuts to America's crumbling infrastructure. These two factors alone will make it increasingly difficult for America to compete globally in the years to come.


But perhaps the most toxic legacy of all was Reagan's abolishment of the Fairness Doctrine. This ensured that America's mainstream media would increasingly do little more than parrot the official corporate line. Americans today are hopelessly misinformed on the issues these days. And a nation that is misinformed is going to find it difficult to ever take the necessary steps needed to fix the crises unleashed by Reagan's policies.